Gold, Silver Price Outlook: More Rate Cuts By Fed In 2024 And Beyond To Make Precious Metals Biggest Winner?

Gold and silver prices are likely to get a big boost ahead in India if the US Federal Reserve continues the rate-cut cycle in the upcoming policies of 2024 and beyond. Lower interest rates make gold and silver a favourable investment option, in comparison to the dollar amidst geopolitical tensions and an uncertain global economic environment. According to the latest report, the Fed rate cuts will make precious metals the biggest winner, and the dollar to lose shine.

Gold Price Outlook:

As per the latest report of Heraeus, a leading provider of precious metals services and products, the 50 bp cut to interest rates delivered by the Federal Reserve last week is more of an admission that cuts were overdue by one FOMC meeting, rather than heightened dovishness. Fed chairman Jerome Powell indicated that markets should not expect this rate of interest rate cuts going forward, something that interest rate speculators seem to be buying for now.

Immediately after the cut, Heraeus highlighted that the dollar slumped and gold breached $2,600/oz for the first time ever, before dropping just as fast back to $2,550/oz.

Heraeus note said, "The big cut last week and the prospect of lower financing/ borrowing costs going forward to Q4'24 and 2025 add to gold's support. The conflict in the Middle East heating up again also adds to the geopolitical risk premium gold can enjoy, adding another layer of support."

Overall, Heraeus said, it seems the way higher for gold is wide open, though a period of consolidation is likely as market expectations for the rate cut path for the rest of the year are refined. Market pricing currently sees another two 25 bp cuts between now and the new year, largely matching the outlook of the FOMC dot plot. This should continue to lend strength to the gold price, as the dollar declines.

Silver Prices Outlook:

In the case of silver, Heraeus report pointed out that the gold: silver ratio fell to 83 last week as the returns from the higher metal outstripped gold, despite the latter reaching new all-time highs in the $2,600s. Similarly for other commodities, lower interest rates are typically favourable for the silver price.

In the first 24 months of the last three rate-cutting cycles (2000, 2007, 2019), silver gained an average of 32%. As a semi-industrial metal, silver can directly benefit from lower borrowing costs stimulating demand. However, adding Heraeus report said, history would suggest that the silver price still has significant upside potential from here, though breaking through strong resistance in the $31-$32/oz area will be the first challenge.

Fed Rate Cut Outlook:

Last week, the US Federal Reserve has surprised economists and the market with a 50 bps rate cut, an aggressive approach to the first move in the easing campaign since 2020. This is higher than the majority consensus of a soft 25 bps cut in the September 2024 policy. FOMC committee led by chair Jerome Powell seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.

Cristina Dwyer, Analyst, J.P. Morgan Wealth Management in a latest report said, "The Fed's decision to ease monetary policy is likely to support growth and stabilize a slowing labor market. Our strategists believe this is the beginning of the Fed moving into a new stance - in the Fed's eyes, recent slowing in the labor market is now a bigger risk than inflation. This cut in policy rates, and plans to lower rates further, is designed to support economic growth."

Further, the analyst highlighted that the much-anticipated Summary of Economic Projections (SEP) showed that the median FOMC participant is penciling in 50 basis points of further cuts across the remaining two meetings this year, followed by 100 basis points of cuts in 2025 and 50 basis points more in 2026 to a terminal rate of 2.9%, where they sees rates remaining through 2027.

However, the analyst at JPMorgan said, "Our strategists believe that there will likely be two additional rate cuts in 2024, and expect the cuts to continue into 2025. This cut in policy rates should help support labor markets from slowing too quickly."